Asset allocation strategies, data snooping, and the 1 / N rule
Wensheng Wu and
Journal of Banking & Finance, 2018, vol. 97, issue C, 257-269
Using a series of advanced tests from White's (2000) “Reality Check” to correct for data-snooping bias, we assess the out-of-sample performance of various portfolio strategies relative to the naive 1/N rule. When we analyze 16 basic portfolio strategies, 126 learning strategies, and nearly 2,000 extended strategies, we find that some strategies outperform the 1/N rule in conventional tests that do not account for data-snooping bias. However, after we use the new tests that control for such bias, we find that none or very few of these strategies outperform the 1/N rule. Thus, our finding underscores the necessity to control for data-snooping bias when making asset allocation decisions.
Keywords: Reality check; Portfolio strategies; Data-snooping bias (search for similar items in EconPapers)
JEL-codes: G11 G14 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:97:y:2018:i:c:p:257-269
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